San Diego County's office market, which has been struggling for six years under relatively high vacancy rates, has pulled even, tying the U.S. in average vacancy rate of 11.7 percent.

CoStar Group said in its midyear report that San Diego's 112.9 million-square-foot office market posted a vacancy rate down from 11.9 percent in the first quarter and 13.1 percent from the second quarter of last year. The national rate dropped from 11.8 percent in the first quarter.

"It's been on a continuing trend," said Brett Ward, senior vice president at the Cassidy Turley commercial real estate firm.

From 2007 through the first half of last year, San Diego's vacancy rate had trailed the nation's, reaching a high of 15.1 percent in 2009. The national rate for selected markets peaked at 13.4 percent in 2010.

Asking annual rents have not recovered quite as fast. They averaged $25.78 per square foot locally, up 18 cents from the first quarter and up 29 cents year-over-year. They peaked at $32.14 in 2007.

The national rental rate stands at $23.19, up from the cyclical low of $22.84 last year and below the peak of $25.01 in 2008.

In both cases, the rents do not reflect concessions that typically result in a lower effective rent, although when vacancies drop below the 10 percent level, concessions tend to evaporate.

The vacancy rate also does not reflect subleased space that companies rent out when staffs shrink.

Vacancy rates in other cities

Austin, Texas, 10.1 percent

Chicago, 13.9 percent

Dallas, 15.4 percent

Denver, 11.7 percent

Los Angeles, 12.7 percent

Miami, 12.8 percent

New York City, 7.3 percent

Orange County, 11.7 percent

Orlando, 12 percent

Phoenix, 19.4 percent

Sacramento, 15.4 percent

San Francisco, 9.9 percent

Seattle, 10.4 percent

Washington, D.C., 13.9 percent

Ward said the trends are leading some developers to dust off their building plans.

"People are talking about it now," he said. "Prior to that, it wasn't talked about at all."

For example, Sempra Energy is considering moving its corporate headquarters downtown into a new build-to-suit high-rise Cisterra Real Estate might construct near Petco Park. But Sempra spokesman Doug Kline said no decisions have been made.

The CoStar figures mean 13.2 million square feet remains empty, not counting subleases. With just under 1 million square feet of leased space for the first half of the year, after deducting vacated space, it would take about six years to absorb all the excess.

But since builders don't typically wait that long to greenlight a project, Ward said new offices are likely to be announced in the next year or so to be ready when vacancies drop below 10 percent.

"It all depends on employment growth," he said. If jobs grow by 2.3 percent annually, "that's going to help out pretty significantly," he added.

With lenders skittish about approving speculative projects, Ward said developers actively seek pre-leasing deals to meet the minimum threshold as high as 70 percent. Some users who can't wait 18 to 24 months from leasing signing to move in might instead seek rehabilitated space that can be readied quicker.

"The reality is San Diego has significant barriers to entry," Ward said, referring to the relatively little vacant, undeveloped and cheap land available. By contrast, places like Phoenix and Dallas have abundant greenfield land available.

Looking to the immediate future, Ward said rents are likely to rise and concessions evaporate, particularly in the most desirable coastal office markets.

Centrewest, a 116,625-square-foot office complex at 9740 Scranton Road in San Diego, sold for $29.2 million in June. Cornerstone Real Estate Advisers was the buyer, Cruzan/Monroe, the seller.
— - Cassidy Turley San Diego

Centrewest, a 116,625-square-foot office complex at 9740 Scranton Road in San Diego, sold for $29.2 million in June. Cornerstone Real Estate Advisers was the buyer, Cruzan/Monroe, the seller.
/ - Cassidy Turley San Diego

Leasing: Amyln Pharmaceuticals moved out of two locations, vacating 101,969 square feet on Executive Drive and 73,376 square feet out of Towne Centre Drive, both in the UTC area. The U.S. Fish & Wildlife Service left 50,000 square feet on Hidden Valley Road in Carlsbad. The FBI moved into 248,882 square feet in Mira Mesa and Petco occupied 81,881 square feet on Carroll Canyon Road in Scripps Ranch. Net leasing countywide totaled 532,492 square feet, compared with 455,398 in the first quarter and 397,175 square feet in the second quarter of 2012.

Sales (1st quarter): Transactions of 15,000 square feet or more involved 11 office properties worth $133 million for a price of $185 per square foot. That compares with 19 transactions worth $512.8 million and $227 per square foot.

San Diego County offices, 5 top markets

Submarket

Buildings

Size sq.ft.

Vacancy rate

Rental rates

(millions )

per sq.ft./per yr.

Downtown

268

13.5

14.90%

$25.41

Kearny Mesa

287

10.9

11.00%

$20.90

Mission Valley

138

7.0

11.70%

$24.31

Sorrento Mesa

141

9.6

7.80%

$28.12

UTC

84

7.7

12.30%

$31.35

County

5,364

112.9

11.70%

$25.78

The overall vacancy rate dropped slightly from 11.9 to 11.7 percent from the first to the second quarter. Source: CoStar Group